The Effect of Mergers and Acquisitions of the Financial Perfomance of Financial Institutions in Kenya

Abstract

The purpose of this study was to establish the effect of mergers and acquisitions on the financial performance of financial institutions in Kenya. The study took the form of a causal research design since this was a cause effect form of relationship. The study population included 104 financial institutions, out of which purposive sampling was applied to select 25 financial institutions that had undergone mergers and acquisitions. Secondary data was collected from a total of 18 firms. Multivariate regression analysis and correlation were used to analyze the data. The findings were presented in tables and graphs. The findings reveal that before mergers and acquisitions took place, financial institutions in Kenya did not have strong liquidity and solvency. Their operating expenses also increased with increase in profitability. The portion of the financial performance that was explained by liquidity, solvency and operating expenses of the firms was very small before mergers and acquisitions. However, after mergers and acquisitions took place, the liquidity and solvency of the firms improved significantly thus enhancing their financial performance. The operating expenses of the firms after mergers and acquisitions also seem to decrease as the financial performance increases. A strong positive relationship was witnessed between the liquidity of the firms and their financial performance as well as between the solvency and financial performance. However, a moderate inverse relationship was evident between operating expenses and the financial performance